Landlords, Will Your Property be un-rentable this year?
It has been on the cards for a while, yet awareness of the changes to Energy Performance Certificates (EPC) and the private rented sector seems scarily minimal. According to data released by Quick Move Now, 1 in 10 properties could be classed as un-rentable as a result of the change, and you could even be at risk of a civil penalty of up to £5,000. So what are the changes, and what do they mean for you and your rental properties?
As of 1st April 2018 it will be illegal to let a property with an energy efficiency rating of less than E. Initially, the regulations will be for new properties to let and tenancy renewals, but as of 1st April 2020 it will be extended to all tenancies. This doesn’t just affect the residential sector, but also commercial buildings - all properties that require an EPC, whether they are houses or self-contained apartments/flats, are subject to the new regulations.
There is a lot of fear about the impact this regulation change will have on an already stretched private rental sector; with approximately 8% of properties in the sector being affected unless improvements are made, we would be facing critical levels of available properties to let. Demand for rental properties rose to 5.4 million in 2014 according to the Royal Institution of Chartered Surveyors (RICS), and they predict that this will increase by an additional 1.8 million by 2025.
The position of listed properties and dwellings situated within conservation areas is unclear as yet, whereas buildings that have special architectural historical merit have been excluded. However, the regulations do state that an EPC may not be required “where compliance with certain minimum energy efficiency requirements would unacceptably alter their character or appearance.” Other exceptions include places or worship, industrial sites, and also any building where the landlord can prove it is being used as a furnished holiday accommodation that meets the definition given by HMRC.
At Brighton Homes we would recommend that when it comes to improving the energy efficiency of your properties, you ‘future proof’ the works. The government is committed to raising the energy standards in the UK, and therefore it is expected that the minimum energy efficiency rating could be raised again in the future.
When it comes to ensuring your property is compliant, to meet the 2018 minimum standard you can make improvements to any of the items listed below, which are all taken from the Green Deal (Qualifying Energy Improvements) Order 2012 Schedule, as documented in the government’s ‘Property Minimum Standards – landlord guidance
• Air source heat pumps
• Biomass boilers
• Biomass room heaters (with radiators)
• Cavity wall insulation
• Circular pumps
• Cylinder thermostats
• Duct insulation
• Gas-fired condensing boilers
• Ground source heat pumps
• Hot water showers
• Hot water systems
• Hot water taps
• External wall insulation systems
• Fan-assisted storage heaters
• Flue gas heat recovery devices
• Heating controls for wet central heating systems or warm air systems
• Heating ventilation and air-conditioning controls (including zoning controls)
• High performance external doors
• Hot water controls (including timers and temperature controls)
• Hot water cylinder insulation
• Internal wall insulation systems (for external walls)
• Lighting systems, fittings, and controls (including rooflights, lamps and luminaires)
• Loft or rafter insulation (including loft hatch insulation)
• Mechanical ventilation with heat recovery systems
• Micro combined heat and power
• Micro wind generation
• Oil-fired condensing boilers
• Pipework insulation
• Radiant heating
• Replacement glazing
• Roof insulation
• Room in roof insulation
• Sealing improvements (including duct sealing)
• Secondary glazing
• Solar blinds, shutters, and shading devices
• Solar water heating
• Transpired solar collectors
• Under-floor heating
• Under-floor insulation
• Variable speed drives for fans and pumps
• Warm-air units
• Waste water heat recovery devices
• Water source heat pumps
If you can provide evidence of one of the following mitigating circumstances, you may be eligible for an exception to the minimum standards of improvements. It must be noted that this exception is made to you personally, and therefore will not be transferred to the new owner should you sell the property or transfer ownership.
• Should you legally require third party consent to undertake improvements to meet the minimum standard, and this was denied or unreasonable conditions set, then you may be exempt.
• You require consent and the occupying tenant will not give it.
• There may be a case for exemption where the improvements needed could reduce the market value of the property. In this case, evidence must be supplied in the form of an independent survey from a surveyor who is on the Royal Institution of Chartered Surveyors (RICS) register of valuers.
• The government recognise that, should you suddenly become a landlord, it would be unreasonable for you to need to comply with these regulations immediately, therefore you may be eligible for temporary exemption.
• A qualified professional provides a written report stating that installing wall insulation could not improve the energy efficiency rating above E, and would have a negative impact on the property, fabric, or structure.
• All improvements have been made to meet the minimum energy efficiency as recommended in an EPC, surveyor, or Green Deal report, yet the property’s rating remains below an E.
• The improvements require Green Deal finance as they are only cost-effective with upfront costs, yet you have failed the relevant credit checks.
Where you consider yourself to meet any of the above conditions of exception, you will need to provide details and evidence to the PRS Exemptions Register, which is a centralised self-certification register operated by the government, and planned to be open by 1st October 2017. Please note, exemptions have a maximum lifespan of 5 years, and will need to be reviewed to ensure that they are still appropriate. Although, if you’re a new landlord you only have a 6-month period to make the necessary improvements. Should your exemption be due to tenant consent the exemption is only valid until the end of the tenancy, or for 5 years, whichever is soonest.
If it is suspected that you are in breach of the minimum standard of energy efficiency, you may be issued a compliance notice, or be given a financial penalty. This can range from the minimum penalty of £5,000, for less then 3 months’ breach of regulations, to £150,000 for renting out a non-compliant property with a regulation breach for more than 3 months.
The government has provided a small number of private rental sector non-compliance financial penalty examples, including the following: “If the landlord lets a sub-standard property for more than three months, in breach of the Regulations, registers misleading information on the PRS Exemptions register in relation to that letting, and fails to comply fully with a compliance notice served in relation to that letting, the enforcement authority could impose a financial penalty of up to £160,000 (up to £150,000 for letting the property, up to £5,000 for registering false or misleading information, and up to £5,000 for failure to comply with a compliance notice).”
We are supporting all our landlords to ensure that they don’t fall foul of this significant change in legislation. As we have stated, if you do need to undertake work, it is worth looking to future proof your property, in other words seeking to raise the energy rating of your property above E, as it is predicted that this rating will rise again soon.
Should you have any questions with regard to necessary improvements, the PRS Exemptions Register, or the EPC itself, please don’t hesitate to contact a member of our team at Brighton Homes.